Household savings to drop by 71% a week due to inflation crisis
The amount households save is due to drop to just £26 a week
Last updated 29th May 2022
The amount of money households will be able to save over the coming months is set to drop by 71% compared to previous figures.
Those looking to put money away would need to earn an average of an extra £80 a week, or spend £66 less to save the same amount of money as done in 2021, according to figures from mutual investment company Scottish Friendly and the Centre for Economics and Business Research (CEBR).
As a result, the average household is set to save just £26 a week in the next three months as the cost of living crisis continues to make it harder to make ends meet.
The CEBR estimated that saving had soared during the COVID-19 pandemic, but as the economy opened up and the cost of living crisis intensified, people's finances would become stretched.
Saving levels have dropped every quarter since March 2021 but are expected to recover in the autumn, as the cost of living crisis eases.
In total, the average household will save just £39 a week for the year, down by 56.6% on figures from 2021, which had stood at £89 a week.
It comes as people brace themselves for a tight financial period, with a survey of 2,000 people finding 72% believing that the cost of living crisis is expected to worsen the standard of living.
Speaking on the figures, Kevin Brown, savings specialist at Scottish Friendly, advised that people should start cutting costs where possible.
"Household savings are set to fall well below pre-pandemic levels in the second quarter of this year as Brits' take-home pay drops and their outgoings rise," he said.
"The 1.25 percentage point hike in national insurance contributions and the freezing of income tax bands couldn't be happening at a worse time for families. This will squeeze people's take-home pay while the new energy price cap will drastically increase many households' energy bills.
"Eventually, inflation will ease and wages will rise, which will allow more households to re-engage their savings, but for now it's a case of cutting costs wherever's needed to make ends meet," he added.
Where the cost of living crisis is hitting people hardest:
Interest rates and inflation go up
Inflation rose by 8.8% in the 12 months to January 2023, down from 9.2% in December 2022. With interest rates also rising to 4%, those saving money will earn more interest on their finances, whilst those paying mortgages would pay more interest to the bank.
Energy bills
The price of energy went up incredibly as the cost of living crisis hit, with the gas price spike caused largely by the war in Ukraine. The price cap - which is set by an independent regulator to help offset costs onto customers - was set to rise to £3,549 for an average home in October but a price freeze from the government restricted the typical bill to £2,500. That's still an increase of 27% from the previous energy cap and as it's a cap on unit cost, the more energy you use the higher your bill will be.
Food prices
The cost of a weekly shop also has gone up as a result of the cost of living crisis. As a result of the war in Ukraine, a number of products including cooking oils and wheat have been disrupted. This means that several products are now considerably more expensive, driving bills up for customers.
Prices at the pumps
The average cost of petrol has also rose to unprecedented levels. Supply lines for petrol have been thrown into doubt as a result of the war in Ukraine, as Russia is a large export partner for gas, oil and fuel. In April 2022, the average price for a litre of petrol on the forecourt was 160.2p, whilst a litre of diesel would cost 170.5p. By late June 2022 the price had risen to an average of 190.9p for a litre of unleaded and 198.9p for a litre of diesel. In March 2023 the price wass on average of 147.03 in petrol and 167.04 in diesel.
Average cost of filling up a car with petrol hits £100
On 9th June 2022, the average cost of filling up a car with petrol hit £100 for the first time ever. Diesel had already hit that milestone. It comes as the cost of fuel hit a record high of one pound eighty a litre. The 2p rise was the biggest daily jump in 17 years. Prices have dropped by at least 20p per litre since the high point.